Whether credit of goods used in manufacturing capital goods can be availed as input credit?

PJ/Case law/2014-15/2265

Case:- SANCHVI FORGING & ENGINEERING LTD. vs. COMM. OF C. EX., VADODARA-II

Citation:-2014(302) E.L.T. 136 (Tri. – Ahmd.)

Brief facts:- The brief facts that arise for consideration are that the appellant herein engaged in manufacture of Flanges and fittings and are also availing Cenvat credit as per provisions of Cenvat Credit Rules, 2004. During the period July, 2007 to March, 2009, the appellant had taken Cenvat credit in respect of Corrugated Ply, M.S. Beam, channels, TMT Bars, Angles, etc. which are falling under Chapter Heading no. 48, 72 & 73 of Central Excise Tariff Act, 1985 respectively. The appellant herein had availed Cenvat credit of these items under heading of capital good. After coming to conclusion that the credit availed by the appellant seems to be improper, show cause notice dated 21.12.2009 was issued for demanding Cenvat credit of an amount of Rs. 3,88,170/-, interest thereof and also imposition of penalties. The adjudicating authority, after following the due process of law, confirmed the amount fully, which on being challenged before first appellate authority, was also upheld and hence, this appeal.

Appellant’s contentions:-Ld. Counsel appearing on behalf of the appellant would take through the entire case records, the impugned order and order-in-original. It is his submission that the appellant has been taking a consistent stand before the lower authorities that the said items were used for fabrication of machinery mainly Oil Fired Heat Treatment Furnace, Rolling Steel Hammer, Coil Boiler with Water and Air pre-heater, MPM Hammer, Blinking Hammer, etc. it is his submission though the items on which credit was availed, would not become capital goods, but the items can be considered as an input in the manufacturing of capital goods which were further used in the factory premises for manufacturing of final product. He would also submit that the definition of input during the relevant period indicated credit of items which are used in the manufacture of capital goods can be availed as input. He would submit that Larger bench of the tribunal in the case of Modi Rubber Ltd. – 2000(119) E.L.T. 197 (Tribunal-LB) has laid down a law that even if it was declared that the goods are capital goods, credit can be availed under input as there is sufficient information. He would also rely upon the decision of the Tribunal in the case of Kisan Sahkari Chini Mills Ltd. -2010(261) E.L.T. 308(Tri. – Del.) for the proposition that initial claim that the item is capital goods, can be shifted to it being input and credit cannot be denied on that ground.

Respondent’s contentions:-Ld. Departmental representative, on the other hand, would submit that there is nothing on record to show that the goods were used for manufacturing of machinery and in fact, the adjudicating authority has recorded that the said inputs were used for erecting structures or sheds and construction of additional factory sheds.

Reasoning of judgment:-The Hon’ble court find from the records that the factual matrix is not disputed inasmuch as the appellant had availed Cenvat credit of Central Excise duty paid on the disputed items as capital goods. It is also undisputed that the appellant had produced a Chartered Engineer’s certificate before the lower authorities as to indicate that the said items have been used by them in the manufacture of capital goods and further consumed in the factory premises. The said Chartered Engineer’s certificate has not been disputed by both the lower authorities. The said Chartered Engineer’s certificate was perused by them and it indicates that the goods have been consumed by the appellant in production of their own capital goods which are installed in the factory for the production of finished excisable goods.
On this factual matrix, now, it needs to be seen whether the said inputs can be considered as capital goods or input. The submission made by ld. Counsel has strong force inasmuch as the definition of input as it stood during the relevant period, is as under:-
(k) “input” mean-
(i) all goods, except light diesel oil, high speed oil and motor spirit, commonly known as petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final products or not and includes lubricating oils, greases, cutting oils, coolants, accessories of the final product cleared along with the final product, goods used as paint, or as packing material, or as fuel, or for generation of electricity or steam used in or in relation to manufacture of final products or for any other purpose, within the factory of production;
(ii) all goods, except light diesel oil, high speed diesel oil, motor spirit, commonly known as petrol and motor vehicles, used for providing any output service.
Explanation 1.- The light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol, shall not be treated as an input for any purpose whatsoever.
Explanation 2.- Input include goods used in the manufacture of capital goods which are further used in the factory of the manufacturer; but shall not include cement, angels, channels, Centrally Twisted Deform Bar(CTD) or Thermo Mechanically Treated Bar(TMT) and other items used for construction of factory shed, building or laying of foundation or making of structures for support of capital goods;
It can be seen from the above reproduced rule that Explanation 2 categorically talks about extending of Cenvat credit of the duty paid on input which includes goods used in the manufacture of capital goods which are further used in the factory of the manufacturer. In their view, though the inputs on which Cenvat credit was taken, may not qualify to be capital goods, in strict sense, but can be qualified as input for manufacturing of excisable goods under the provisions of Rule 2(k) of Cenvat Credit Rules, 2004. They find that the Division bench of the tribunal in the case of Kisan Sahkari Chini Mills Ltd.(supra) was considering an identical issue, wherein in Para 19, it has been held as under:
“19. Undoubtedly, it cannot be disputed that in case a party is entitle to avail the Cenvat credit in relation to the duty paid on an item by establishing the same as the inputs, even though, initially the claim was on the basis that the same was the capital goods. A party can be allowed to shift such claim. However, in the case in hand, the fact remains that there has been already final adjudication on the point as to whether welding electrode used in the process of maintenance and repairs could be input or not and decision in that regard is clearly against such claim by the assessee in the Vikram Cement case. Being so, the appellants would not be entitled to claim the welding electrodes as the inputs to avail Cenvat credit. The law in that regard stands clearly pronounced by this tribunal in the said case. In the facts and circumstances of the case, it is not necessary to consider various decisions sought to be relied upon at this stage. Suffice to say that all the issues in relation to the claim that the items are the capital goods within the meaning of the said expression under said rules being kept open, and to be decided by the adjudicating authority in accordance with provisions of law on the basis of the material available on record and after hearing the parties, the matter could be disposed of by setting aside the impugned order and remanding the matter for the above purpose.”
As per the ratio as reproduced above, an assessee is eligible to avail Cenvat credit of the same items under input category, the same cannot be denied on the ground that the credit was claimed as capital goods.
In the facts and circumstances of the case, they are of the view that the appellant has demonstrated by producing Chartered Engineer’s certificate before the lower authorities that the items on which Cenvat credit was availed, were, in fact, used for fabrication or manufacture of capital goods which were further consumed by them. In view of the foregoing findings, they are of the view that Cenvat credit cannot be denied to the appellant. Accordingly, the impugned order is set aside and the appeal is allowed.

Decision:-Appeal was allowed.

Comment:- The essence of this case is that goods on which credit is availed may not qualified to be capital goods but can qualify as input for manufacturing excisable goods under rule 2(k) of Cenvat Credit Rules, 2004 and accordingly, the credit on the same may be availed as per old defination of input. Further, Chartered Engineer’s certificate produced also showed that the items were used in the fabrication of capital goods which were further consumed. Consequently, it was concluded that the assessee is eligible to avail credit as inputs and the credit cannot be denied on the ground that credit was claimed wrongly under ‘capital goods’ initially by the assessee.

Prepared by:- Monika Tak

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PJ/Case law/2014-15/2265

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